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Google gets a bounce, ends its first day up 18 percent

Email|Print|Single Page| Text size + By Robert Weisman
Globe Staff / August 20, 2004

Shares of Google leaped $15.34, or 18 percent, to $100.34 on the Nasdaq exchange yesterday in an opening day of trading that harkened back to the wild run-ups of the dot-com era.

The unexpected bounce, on a day when stocks generally traded lower, seemed to redeem an initial public offering that 24 hours earlier had been ridiculed on Wall Street, after the Web search giant priced its stock sale at $85 a share, 30 percent lower than it had first estimated.

''A little bump is very helpful," said Bob Davis, venture partner at Highland Capital Partners in Lexington. ''I don't think we have the equivalent of a big bang, the second coming of Web stocks. But I think this may be the beginning of an open door for successful companies."

Buyers rushed to snap up Google shares beaten down in a so-called Dutch auction that raised $1.6 billion for the Mountain View, Calif., company and left it with a market value of more than $23 billion. Google initially had set its sights on a $3.3 billion IPO and a market value as high as $36 billion, but weak demand in its unorthodox auction forced the company to slash both the price and the number of shares sold.

More than 22 million shares were traded yesterday. Financial professionals said the investors appeared to include both institutions betting the technology market had bottomed out and small investors who had stayed on the sidelines during Google's auction but wanted a piece of the company that runs the Web's most popular search engine.

''Unbelievable," said Robert C. Fleming, general partner at Prism Venture Partners, a Westwood venture capital firm. ''They got a pop. They had to cut the price 30 percent, but they got a pop."

Ironically, the company's founders and top executives had crafted their auction-style IPO to avoid the kind of first-day ''pop" that accompanied many dot-com offerings in the late 1990s. Such deals enriched early investors and shoveled hefty fees to investment bankers, but fetched less capital for the company to fund growth.

In the end, Google's founders' wishes notwithstanding, the young company's first trading day followed a pattern familiar to technology stocks. Yesterday's winners did include retail investors, a class largely shut out of traditional IPOs, but the company wound up with less than it had hoped.

''When I see a 20 percent surge, what that tells me is all of that is money left on the table," said Scott Kessler, an Internet equities analyst for Standard & Poor's Corp. in New York.

Fleming said the Google offering probably was salvaged by the decision of Google's original venture capital firms to withdraw their shares from the offering, and the decision of insiders such as the company's founders and top executives to scale back on the number of shares they sold in the IPO. Those moves made the IPO more tenable by reducing the number of shares auctioned off to 19.6 million from 25.7 million. And by holding off, the venture firms signaled that they expected Google's share price to rise in the next six months, Fleming said.

Whether that will translate into gains for other technology shares, as was once thought, is far from certain, however.

''This is certainly a positive sign for the market," said James M. Weiss, the founder of Weiss Capital Management in Concord. ''We'll have to wait a little, though, before we take a victory lap."

In fact, the performance of companies that have gone public in 2004 suggests that Google's own success is far from assured. Of the 28 public offerings that had gains of 20 percent of more on their first trading days, just 10 have managed to add to those opening-day gains, according to Thomson Financial, a research firm in New York.

For almost everyone in the investment world, Google's coming-out escapades -- its quirky auction, its idealistic letter to investors, its founders' Playboy magazine interview, its delays and disclosures and repricing move -- have proved to be prime summer entertainment, even for those who weren't buyers.

''What did P.T. Barnum say? There's a fool born every day," said Robert B. Lamkin, partner at Techno Venture Management in Boston. ''It's been so overhyped that I thought it was going down to $65."

But Lamkin, on the links at the Sandwich Hollows Golf Club in East Sandwich, was clearly paying attention. ''I'm playing golf right now," he said, ''and we're watching Google's stock move on a Motorola cellphone."

Robert Weisman can be reached at weisman@globe.com.

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